Developing a strategic audit plan

Whether your firm is small or one of the largest organizations in the country, it pays to develop and maintain a strategic audit plan, according to Lorin Venable, CPA, CGMA.

As assistant inspector general for financial management and reporting at the Department of Defense Office of Inspector General, Venable oversees the department’s financial statement audits, including supervising over 160 auditors, as well as over 1,000 contract auditors, as they continuously improve DOD financial accounting practices and demonstrate accountability to taxpayers. In August 2020, she was awarded the AICPA Outstanding CPA in Government Impact Award at the federal level.

With $2.9 trillion in assets, more than 2.1 million military service members, and more than 770,000 civilian employees, the U.S. Department of Defense is one of the nation’s largest employers, according to the DOD 2019 financial report. The department also manages nearly 573,000 buildings and structures located on over 4,500 sites worldwide.

“We oversee the 24 individual audits that roll up into the Department of Defense agencywide consolidated financial statement audit,” Venable said. The reporting period ends Sept. 30, and with reports due Nov. 15, her team is on a tight deadline. Having a strategic audit plan in place helps her team stay on track.

“I think creating a strategic audit plan means taking a holistic look or big-picture view of what audit teams need to accomplish over multiple years,” she said.

Venable outlined steps CPAs should consider when developing strategic audit plans for their own clients.

Keep lines of communication open. Venable believes communication is key to developing a successful audit process. “I spend half my time communicating with our stakeholders,” she said. Those stakeholders include Defense Department leaders, military services personnel, and Congress.

“We determine their expectations and put them into a strategic plan that also details how we are going to approach issues such as military equipment inventories and payroll reconciliation,” she added. Venable’s communication strategy includes a planning phase, an internal control assessment, a testing phase, and a final report.

“You have to continually communicate through to the end of the process,” she said.

Build in flexibility. While a strategic audit plan does not need to be set in stone, you should develop a good, sound plan, Venable pointed out. “Your plan should be well thought out, and you must be in agreement with your client, whether it is the mom-and-pop retail business down the street or the Department of Defense,” she said. The plan must be flexible enough to allow for disruptions, such as COVID-19, which has limited onsite audits. 

Venable recommends reviewing available guidance on flexibilities and tools that can be used, such as AICPA guidance. If you have a strategic plan that outlines what you are planning to look at and how you plan to conduct an audit, you will have the framework for moving forward and adapting to change, she said.

Consider human resources. Venable recommends examining the resources you need for implementing your strategic plan. For example, it is important to determine if you have the appropriate allocation of human resources.

Venable’s plan creates teams of six to 30 auditors who allocate their work across 32 financial statement and systems audits for the Defense Department.

“Our audit plan builds in strategies to shift resources to help teams that may need extra help without hindering the workload of the other teams,” she said.

Examine technology needs. Normally her team visits several hundred military sites, but due to the pandemic this year, they had to rely on virtual walkthroughs. Venable estimates her staff have done 1,000 virtual walkthroughs, which is a major shift in audit protocols.

“Having a plan in place made it easier to switch gears when we had to rely on technology,” she said. She turned to AICPA guidance that allowed auditors to shoot video for inventory counts but was aware that working in remote locations may have hampered transmission of images, and confidentiality was also a consideration.

Monitor your audit plan all year. For Venable and her department, auditing is a continuous process, starting each January.

“As we execute the current year’s strategy, we are also continuously scanning the horizon and revisiting our plan to determine how we can improve the following year,” she said.  

This scanning includes monitoring rules and guidance pushed out through the federal government and the Defense Department as well as standard accounting and auditing guidelines and updates.

Venable also recommends having conversations with your team and leaders at least monthly to review the strategies that worked, the ones that did not, and to discuss future goals.

“Learning from problems and building on successes each year creates stronger plans,” she added.

— Teri Saylor is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Drew Adamek, a JofA senior editor, at Andrew.Adamek@aicpa-cima.com.